What Problems Does Web3 Solve?
May 10, 2023
When I was first exploring this space, one of the main criticisms of web3 was that it was a “solution in search of a problem.” In some ways, that criticism was fair. Sure, web3 enabled digital ownership, but the most valuable thing people owned was a bad drawing of a monkey or a pixelated face. Even the most fanatical among us has to admit that we were hardly splitting the atom.
As the prolonged bear market ramps up the pressure on builders from "intense" to "crushing," and as politicians exploit our industry as a wedge issue to frighten the uninformed into believing that crypto is nothing more than scams and criminality, it's easy to feel disenchanted. Stripped of the reality distortion field created by 100x investments, unlimited VC funds, and the ability to amass large communities with just a single tweet, what’s left over is the unrelenting glare of reality. The collapse of the crypto markets last year brought the harsh light of day, like the lights coming on at a club when the party's over, and made it impossible to ignore the challenges that lie ahead.
But the truth isn’t all ugly. Beneath the discarded NFT projects that never minted out and the fractured DAOs that crumbled under infighting and bruised egos lie the very foundations that initially drew us to this industry: decentralization, digital ownership, and community. These building blocks of web3 can fundamentally transform how we engage with commerce for the better—provided we recognize their potential and the roles they can play.
What Problems does Web3 Solve?
For the blockchain to have any lasting relevance, it needs to be adopted by organizations — and not just by big corporations, but governments, public institutions, small businesses, and startups alike. In order for this to happen, there needs to be a strong business case that goes beyond the idealistic notions of web3 proponents. Businesses typically avoid taking risks solely based on ideology, but ideals like decentralization, ownership and trustlessness are often held up as self-evident virtues of the blockchain, without any explanation of the value they provide to either end of the transaction.
Decentralization creates opportunities
Decentralization is the mantra of web3, which makes sense given that the blockchain's primary feature is its decentralized ledger. However, amidst all the talk of decentralization, we often neglect to answer the question, "but who cares?"
Competition plays a critical role in our economic system. It is the driving force behind innovation, and efficiency. However, in recent decades, power over the internet has increasingly become centralized by large corporations, severely limiting consumer choice. Social media platforms have created significant societal problems while keeping users locked in, unable to switch platforms because they cannot take their social connections with them.
As more and more of our life becomes represented by rows in a database, the more dangerous it is for those databases to be hidden away from us, completely out of our control.
Unlike a centralized database, the blockchain is a public good. It offers a way to store information, whether that’s community votes or the data that defines our digital lives, in a manner that remains accessible to the services we use, while keeping it within our control. Our data can still belong to us while creating enormous opportunities for small businesses to claim a share of the trillion-dollar pie currently being devoured by a handful of insatiable billionaires.
For tech businesses, the blockchain enables the permissionless build on top of existing structures without worrying about a capricious CEO suddenly pulling the plug on their business model. For customers, it means the freedom to choose how they interact with their data without committing to a specific company's database. It means that we can interact with one another digitally, without our interactions being mediated by a single corporation.
Ownership is a necessity of digital life
We all regularly interact with digital goods, but do we own them? In most cases, the answer is no. The ebook you bought from Amazon? That’s Amazon’s property - you’re just borrowing it. The songs you stream from Spotify? They were never even stored on your device. Artwork? You can right-click and save anything on the internet, but do you own it?
In a world where any digital media is just a VPN connection and a magnet link away, a critical distinction of ownership is the willingness of consumers to pay for something. This could be because you want to support an artist you love, seek the prestige associated with purchasing something rare or expensive, or simply because you were raised not to steal, even if they're fungible copies that can be cloned instantly by anyone.
Ownership also implies a right of transaction. If I buy a toaster, I can sell that toaster to my neighbor. The toaster company can't stop me from doing this because I have physical possession of the item. On-chain goods similarly allow for resale in secondary markets or directly to another person, which reduces the economic risk of purchasing something. If I get sick of an album or find myself never watching a film, I can recoup some of my initial cost of purchase.
Paying for digital content has always been a challenge, partly due to the psychological barrier of paying for something that you might already have access to, however legally, and partly because it's never been possible to distinguish between those who purchased something and those who merely downloaded it. Media and tech companies combated this with DRM and locked-down marketplaces, which resulted in media piracy becoming a standard practice for many. On-chain media offers a different solution, a global marketplace where files may be accessible to anyone, and those who desire to own the content can do so.
If you run a massive media company, you’re probably not convinced. But, for the thousands of artists that media and tech companies feed off of, ownership of digital goods opens up a huge opportunity that was closed off by centralized corporate marketplaces. Just when the internet empowered every musician to publish their work globally, it also eliminated the ability to sell directly to fans. Web2 democratized production and distribution, but web3 has democratized the tools of commerce.
An untrustworthy world requires trustlessness
There is another significant issue with transacting on the internet: trust, or more accurately, the lack thereof. Many businesses achieved unicorn status by merely facilitating transactions, by acting as trusted intermediaries between service providers and consumers. Airbnb, Uber, Paypal, eBay, and Etsy are just a few examples. Their success, in hindsight, isn't surprising — they were the security guards ensuring our rides and bedazzled jean purchases were safe.
The problem with transactions is that they require trust. In the physical world, that trust is mitigated by laws and social contracts, and the fact that physical crime usually requires force. Even entering into a legal contract requires trust because if one party fails to uphold their end of the bargain, being compensated for that breach of trust is often expensive and time consuming.
In contrast, the smart contracts underpinning much of what we do on chain rely not on promises but on code. When FTX blew up and most creditors were left with a fraction of what they were owed, DeFi protocols were made whole, because the smart contracts provided no other option.
The ability to trustlessly transact on-chain is a massive opportunity for businesses to unseat large intermediaries and create connections directly with their customers. Loans don’t require banks, insurance policies can be managed by decentralized platforms, and supply chains can be traced through blockchain technology. The removal of intermediaries not only streamlines processes but also reduces transaction costs and enhances security.
Toward a More Equitable Future
While economic headwinds may mean disaster for companies who got caught up in the hype and are building also-ran “X but on the blockchain” businesses, organizations that focus on the real opportunities to serve their customers that web3 unlocks will be the driving force behind transforming web3 into simply “the web.”
That's why Bankless Consulting has made it our mission to help businesses identify those opportunities and leveraging them to the fullest extent. We believe this technology is not only good for business but also good for people, as it allows us to create a system that balances public good with economic growth, fosters competition, and entitles artists, creators, and entrepreneurs to the sweat of their brow without the need for a parasitic intermediary.
A web3 world is a creative one, where business models have the opportunity to succeed or fail based on their own merit, rather than existing at the pleasure of the top of the NASDAQ. It's a world where transactions are as safe and simple as posting a video, and where people, not corporations, own their identities. And it is more likely than ever that it will be driven by businesses the world hasn’t heard of yet.
Ryan Anderson is a brand and marketing strategist and founding member of Bankless Consulting.